20 U.S. Markets Where the 2% Rule Might Make Sense

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The 2% rule has long been a topic of debate in the BiggerPockets community. The 2% rule more or less argues that for an investment to be great, the monthly rent should be at least 2% of the purchase price (a $100,000 home should rent for $2,000 per month). Whether or not you agree, a significant chunk of BiggerPockets members use it as a screen for deals.

Related: The 2% Rule: Fact, Fiction, or Feasible?

For investors in certain areas of the country, achieving the 2% rule may seem almost mythical. Where are people getting such good deals? Are they getting these properties because prices are low, because rents are really high, or a combination of both?

Below you’ll find a list of regions in the country that, according to Zillow, listed properties that on average had the best rent to price ratios in the first half of 2014. These might be great places to start your hunt for a 2% rule property.

Only two regions in the entire country beat the 2% rule on average, and the vast majority of regions in the country didn’t even meet the 1% rule. Parts of Florida, Texas, and rural New England dominate the top 20.

Keep in mind that some of the regions listed have few Zillow listings, perhaps distorting the data. Research these regions thoroughly before making any decision to invest. While this data may be useful in targeting certain markets in which to begin your search for rental properties, it should not be used as an investor’s sole source of information.

Here are some additional notes regarding the data in this study:

• This data only incorporates Zillow listings
• Some regions have very few data points
• This study does not account for important metrics like # of bedrooms/bathrooms, sqft., lot size, etc
• All property/rental prices are listed, and may differ significantly from actual prices

If you’d like to recreate this list study, or want to play around with the numbers at a more granular level, here’s how the data was generated:

Zillow posts data in a downloadable format at http://www.zillow.com/research/data/. You can download market data from listings in Zillow throughout the country. This study contrasts the “All Homes (SFR, Condo/Co-op)” data with the “Median rent list price ($)” data at the metro level. Email [email protected] if you have any further questions about the generation of this content.

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About Author

A longtime fan of BiggerPockets and a Real Estate Investor managing his first property, Scott is the company’s Director of Operations. BiggerPockets is a BIG website, and Scott’s background in finance and big data analysis will be instrumental in the next phases of company growth and in helping to bring the resources of BiggerPockets to more investors worldwide. Scott is passionate about helping others build wealth and serving his community in whatever ways he can. In his spare time, Scott enjoys skiing, biking, and cooking, and he is a lifelong rugger.

17 Comments

  1. Thanks for the article Scott. Most of these markets look good, but Zillow seems way off for Brevard NC. I can’t see how there is any way possible the median rent is $3,200. It has to be closer to $1,000 in my opinion. I live about an hour away from there, but search its craigslist offerings regularly. Right now the highest for rent $1750 for a lakefront 4 bedroom home.

    There are several markets in NC that can achieve the 2% rule without going into war zones. Hickory, Newton, Conover, Shelby and Gastonia are just a few.

    • Scott Trench

      Austin – One possible reason for such a high median rent listed in Brevard NC is that only a few places were listed on Zillow the first few months of this year. It’s also possible that only very expensive places were listed on the site.

      Zillow happens to be the first place I go to when looking at what’s on the market, simply because it is one of the fastest and easiest ways to browse many properties quickly. The goal of this article was to point to 20 markets where investors might possibly have a decent chance at 2% rule properties. At the very least, I think that Zillow data indicates that these markets are worth a second glance.

  2. Scott using zillow for data research doe not hold much value. They do not track every market. In some markets where properties sell fast realtors do not even bother to list on zillow. Using Realtor.com which pulls data from the mls would have been much more accurate research. Just off the top of my head I see 3-4 cities that easily make that list with better numbers. Cincinnati Ohio for one.

    • Scott Trench

      Eddie, I’m sorry that you do not agree with the source of my data. I had hoped that I pointed out the weaknesses of Zillow data in my article, but I see that I did not make that clear enough for you. The goal here was to use Zillow’s data to point out markets that might be worth a look. I hope you’ll read my next post and let me know if I improve!

  3. This article goes to my thought that Zillow is great for basic info and pictures but really is not very good for doing any kind of true price and rental data.. Much better info can be had just looking at craigslist for rent rates and local MLS for property values and sales prices.

    • Scott Trench

      Jay,

      Thanks for the feedback. I certainly understand that Zillow is not to be relied on for true price and rental data – everything is list price. That said, I certainly like to browse Zillow for properties in my area regularly to get a feel for what is going on. My hope is that this broad overview could point someone looking at the nation as a whole towards markets that might be more likely to have houses that fit the 2% rule than others.

  4. Brandon McCombs on

    Some comments:
    1) I’ve never trusted zillow’s zestimates for building prices or rents because I can’t tell what they are based on and don’t make sense. One issue I think is they don’t reflect market conditions sufficiently fast as market changes occur.

    2) wheeling Ohio is a nonexistent town. It’s actually wheeling wv. I used to live there.

    3) one reason Cambridge and wheeling are in this list is because of the oil and gas boom currently happening in Ohio, PA and northern/north centel WV. It’s been happening for about 5 years now but has especially been taking off in the last 3 years. My brother used to live in a town south of wheeling on the Ohio side of the river. He moved out of the house but continued renting it along with a garage apt on the property. He was getting about $1800/mo between the 2 units. He got tired of being a landlord so I bought the property for a discount as my first rental property and take advantage of the oil and gas workers per diem pay. I ended up not having anyone within that industry as tenants which did cause the rent I got to decrease because the locals just couldn’t afford the same rent. This has not prevented some landlords from kicking out some long standing local tenants so they could rent to oil and gas workers. For some workers they just decided to buy houses which has caused housing prices to increase and very few houses are now available as those workers have snatched them up. This is occurring up and down the Ohio river from the top of the northern wv panhandle to the base of it and on both sides of the river. Many hotels have popped up as well to house these workers. It’s they lucrative. But having the oil and gas workers as tenants comes at a price. Many of them are roughnecks who don’t treat property of owners very well so damage is sustained.

    So that’s why those 2 towns are in that list. I can’t explain why the other towns are at the top of the list. And it’s odd that more towns in eastern Ohio and northern wv aren’t in the list because there are many more in they region affected by the oil and gas boom.

    • Scott Trench

      Brandon,

      Thanks for the feedback. A couple of quick notes:

      None of the data I present here is based on Zillow Zestimates. It is based on data from list prices in the first half of 2014. That doesn’t mean its perfect, it is simply what landlords and homeowners were listing their properties at for rent/price.

      That’s interesting about Wheeling, it looks like its on the very border of WV and OH, with a few parts in the middle of the Ohio River. Maybe Zillow estimates that small portions of the town are in Ohio.

      Great feedback about the oil boom. A very interesting market for investors who are ok with some of the risks you pointed out.

      Thanks,

      Scott

  5. Scott,, the problem with Zillow that I see.. Is they are so far off true values and rental rates and investors that don’t know any better take it as gospel and they end up passing on deals that are good deals because Zillow picked up a bombed out foreclosure and said the property is worth X when its really worth Y … or the flip side it picks up some retail sales that create a far greater value than reality…. Just based on my feedback from my years of dealing with investors if they start off with Ya BUT Zillow says this then I know its down hill from there.
    I personally think Zillow has little credibility with current market values and trends but is nice for basic info house size age look at pictures maps etc. Lastly I am sure appraisers never go to Zillow to get values RIGHT why should we as the public use it for the same purpose.

    • Scott Trench

      Jay. I agree that no one should take this data as gospel. I tried to make that very clear in my article, having devoted about half of the text to discussing possible weaknesses in the data and in discussing how I created the list. I do believe that this data serves its intended purpose in identifying intriguing markets where investors might want to take a second look.

  6. Thanks for the nice article, Scott! Your work is much appreciated. I just arrived in Columbus, Ohio today and plan to check out some of the areas you mentioned in your article.

    Thanks,
    Steven

  7. I find it very odd that Baltimore city is not mentioned because that is one area I know for sure which meets the 2% rule!

    • Scott Trench

      Anil – it is possible that many lower priced Baltimore properties are not making their way onto the Zillow platform. That would prevent Baltimore from making the list here.

  8. Only 1 of the top 20 is in New England. New York is not New England ;-) And I think its bogus data anyway. Rutland, VT is not averaging $3K/mo rentals. Unless Zillow uses total revenue from multi-family houses, then maybe..

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